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Challenges and opportunities for carbon emissions reductions in Peru

In December the eyes of the world will be on Lima, as Peru prepares to host world leaders at the 20th annual Conference of the Parties to the UN’s Framework Convention on Climate Change (COP 20). The country faces unique challenges in tackling carbon emissions and reducing energy consumption, which are likely to attract attention alongside the global questions being asked on climate change.

Compared to its peers in the region, Peru enjoys relatively cheap electricity prices. This is a consequence of abundant domestic sources of hydroelectricity and natural gas. Conversely, transport fuels, mainly oil, are imported and thus considerably more expensive.

The major energy consumers are the mining and oil & gas sectors, construction and manufacturing. These industries face a double challenge, as they need to attempt to reduce their carbon emissions and energy consumption, at the same time as maintaining their bottom line through the inherently high-impact activities that are characteristic of extractive industries.

Nonetheless, a strong case can be made for energy efficiency in the Peruvian private sector as a "win-win" intervention which would decrease emissions while increasing productivity and competitiveness. This is particularly true for export-oriented energy intensive industries, where price reductions thanks to lower energy costs could lead to improving global market share and higher profits.

The Peruvian government would also benefit from a renewed effort on energy efficiency. In addition to the economic boost, it could potentially achieve regional leadership on climate change mitigation and the positive international attention that would come with that.

To be effective, an energy efficiency programme should address all the barriers that affect private sector companies and prevent them from acting. These include lack of awareness of the benefits of energy efficiency, lack of confidence and technical expertise of the technological solutions, and lack of funds especially as commercial banks are reluctant to lend for energy efficiency projects.

The Peruvian private sector accounts for 65% of energy consumption and 60% of CO2 emissions

The Carbon Trust, working with Peru’s National Development Bank, COFIDE, with support from the British Embassy in Lima, has designed a high-level Energy Efficiency Programme that would address these gaps. This is based on our experience in designing and delivering similar programmes in the UK, South Africa and Mexico.

We would propose an intervention featuring two main components: promotion & advice, and finance.

The promotion & advice component would provide direct and indirect advice to companies helping them identify energy efficiency opportunities and assisting them with implementing those opportunities. It would also create a pipeline of high-quality projects which could be steered towards the finance component.

The finance component would involve a loans programme, disbursing funds at discounted interest rates to companies for investment in the projects recommended by the advice component.

The Programme could achieve US$665m of energy cost savngs and 4.2MtCO2 of carbon emission reductions

The Programme would aim to promote energy efficiency and provide advice across the entire private sector. This would include commercial transport, where the focus would be on eco-driving, fuel switching and other energy saving measures. The finance component would focus on small and medium-sized companies which have reduced access to finance.

An innovative aspect of the programme would be the targeting of industrial clusters of similar organisations. Peru’s Ministry of Finance has identified 41 economic clusters across sectors, with a US$65 billion annual turnover. By focusing on clusters and by providing highly standardized packages of advice and finance support through locally embedded teams it will be possible to unlock large savings across multiple similar enterprises at a very low cost per company.

We estimate this US$70 million programme could reach 50,000 companies over 5 years, delivering lifetime energy cost savings of US$665 million, in addition to 4.2 million tonnes of carbon emission reductions, while at the same time supporting competitiveness and productivity in the Peruvian economy.

This is an exciting opportunity that we hope can soon be turned into reality, accelerating Peru’s transition to a sustainable, low carbon economy.